PPF (Public Provident Fund) Benefits, Features and Tax Benefits
Public Provident Fund (PPF) is a popular investment scheme in India that has been around for over 50 years. It is a government-backed savings scheme that allows individuals to invest a certain amount every year and earn a fixed rate of interest on it. PPF is considered to be a safe and secure investment option, with attractive tax benefits. In this blog, we will take a closer look at PPF and everything you need to know about it.
What is PPF?
- 1 What is PPF?
PPF is a long-term savings scheme introduced by the Indian government in 1968. It is a tax-saving investment option that is backed by the government of India. The scheme is open to all Indian citizens, including minors, and has a maturity period of 15 years.
The minimum investment amount is Rs. 500, and the maximum investment limit is Rs. 1.5 lakhs per year. The interest rate on PPF is fixed by the government and is currently 7.1% per annum.
Benefits of PPF
There are several benefits of investing in PPF, including:
- Tax benefits: Investments made in PPF are eligible for tax deductions under Section 80C of the Income Tax Act. The interest earned on PPF is also tax-free.
- Guaranteed returns: The interest rate on PPF is fixed by the government and is currently 7.1% per annum. This means that you can be assured of a fixed rate of return on your investment.
- Long-term investment: PPF has a maturity period of 15 years, which makes it a great long-term investment option.
- Flexibility: PPF allows partial withdrawals from the 7th year of the investment period, which makes it a flexible investment option.
How to open a PPF account?
Opening a PPF account is easy and can be done at any authorized bank or post office. You will need to fill out a PPF account opening form and submit it along with the required documents, such as identity proof, address proof, and a passport-sized photograph. Once your account is opened, you can start investing in PPF.
PPF withdrawal rules
PPF has a lock-in period of 15 years, which means that you cannot withdraw your investment before the maturity period ends. However, partial withdrawals are allowed from the 7th year of the investment period. The maximum amount that can be withdrawn is 50% of the balance at the end of the 4th year preceding the year of withdrawal, or 50% of the balance at the end of the preceding year, whichever is lower.
PPF vs other investment options
When it comes to choosing an investment option, there are several choices available to investors, including fixed deposits, mutual funds, and stocks. However, PPF stands out as a safe and secure investment option, especially for those who are risk-averse. Unlike stocks or mutual funds, PPF offers guaranteed returns, which makes it an attractive investment option for those who are looking for a low-risk investment option.
Another advantage of PPF over other investment options is its tax benefits. Investments made in PPF are eligible for tax deductions under Section 80C of the Income Tax Act, which makes it a great tax-saving investment option.
The interest earned on PPF is also tax-free, which means that you can enjoy tax-free returns on your investment.
Advantages of using PPF Calculator
There are several advantages of using a PPF calculator:
- Accuracy: PPF calculators are designed to provide accurate calculations based on the investment amount, tenure, and interest rate. This helps investors to plan their finances and make informed decisions about their investment.
- Convenience: Calculating the maturity value of a PPF investment manually can be time-consuming and complicated. Using a PPF calculator is a quick and easy way to get accurate calculations without the hassle of manual calculations.
- Flexibility: PPF calculators are flexible tools that allow investors to experiment with different investment amounts and tenures to see how it affects their maturity value. This helps investors to plan their finances better and make the most of their investment.
- Comparison: PPF calculators allow investors to compare the maturity value of different investment options, such as different investment amounts, tenures, and interest rates. This helps investors to make informed decisions about which investment option is best for them.
- Planning: PPF calculators help investors to plan their finances better by providing an estimate of the maturity value of their investment. This helps investors to plan their long-term financial goals and make informed decisions about their investment.
PPF interest rate
The interest rate on PPF is fixed by the government and is currently 7.1% per annum. The interest is compounded annually and is credited to the investor’s account at the end of each financial year. The interest rate on PPF is reviewed by the government every quarter, and any changes are announced on the 1st of April, July, October, and January.
It is important to note that the interest rate on PPF is subject to change, depending on the economic conditions of the country. However, even with fluctuations in the interest rate, PPF remains an attractive investment option due to its guaranteed returns and tax benefits.
Formula used for calculating PPF
The formula for calculating PPF is as follows:
M = P [(1+i)^n – 1] / i
Where: M = Maturity value P = Annual investment amount i = Interest rate/compounding rate (currently 7.1% per annum, compounded annually) n = Investment period in years
This formula assumes that the investor is making the same annual investment over the investment period and that the interest is compounded annually. The maturity value is the amount that the investor will receive at the end of the investment period.
If you are considering investing in PPF, it is important to understand the potential returns on your investment. A PPF calculator can help you calculate the maturity value of your investment based on the investment amount, the tenure, and the interest rate. This can help you make an informed decision about your investment.
To use a PPF calculator, you will need to enter the investment amount, the tenure, and the interest rate. The calculator will then calculate the maturity value of your investment, including the interest earned. This can help you plan your finances and make the most of your PPF investment.
PPF is a safe and secure investment option that offers attractive tax benefits and guaranteed returns. It is a great long-term investment option for those who are risk-averse and are looking for a low-risk investment option. However, it is important to understand the rules and regulations of the scheme before investing in it. If you are considering investing in PPF, make sure to do your research and consult a financial advisor to make an informed decision.
Frequently Asked Question- FAQs About PPF
Q.1) Can NRIs invest in PPF?
No, NRIs are not eligible to invest in PPF.
Q.2) Can I open multiple PPF accounts?
No, individuals are allowed to open only one PPF account in their name. However, an individual can open an account in the name of a minor of whom he or she is the guardian.
Q.3) What happens to my PPF account after the maturity period?
After the maturity period of 15 years, you have the option to withdraw the entire amount or extend the account for a block of 5 years.
Q.4) What is the maximum investment limit in PPF?
The maximum investment limit in PPF is Rs. 1.5 lakhs per financial year.
Q.5) Can I make a premature withdrawal from my PPF account?
Partial withdrawals are allowed from the 7th year of the investment period. The maximum amount that can be withdrawn is 50% of the balance at the end of the 4th year preceding the year of withdrawal, or 50% of the balance at the end of the preceding year, whichever is lower.
Q.6) Is the interest earned on PPF taxable?
No, the interest earned on PPF is tax-free.
Q.7) Can I transfer my PPF account from one bank/post office to another?
Yes, you can transfer your PPF account from one bank/post office to another. The transfer process is free of cost, and you will need to submit a transfer request to the bank/post office where your PPF account is currently held.